UNIVERSITY 

OF  CALIFORNIA 

LOS  ANGELES 


SCHOOL  OF  LAW 
LIBRARY 


LECTURE 


AMERICAN 

CORRESPONDENCE  SCHOOL 
OF  LAW 


NEGOTIABLE  INSTRUMENTS 


BY 

R.  M.  BASHFORD 

JUSTICE  OF  THE  SUPREME  COURT,  WISCONSIN. 


AMERICAN    CORRESPQNDENCE   SCHOOL  OF   LAW 
CHICAGO,   U.   S.   A. 


COPYRIGHT  1908 

BY 

AMERICAN    CORRESPONDENCE    SCHOOL  OF  LAW 
CHICAGO 


BIOGRAPHICAL  SKETCH 

OF 
HON.  R.  M.  BASHFORD. 

Mr.  R.  M.  Bashford  has  practiced  law  for  nearly  thirty  years 
in  the  City  of  Madison,  and  for  more  than  fifteen  years  was  con- 
nected with  the  College  of  Law  of  the  University  of  Wisconsin. 
As  a  member  of  the  law  faculty  Mr.  Bashford  treated  at  different 
times  the  following  subjects:  Federal  Procedure,  Fraudulent 
Conveyances,  Private  Corporations,  Insurance,  Equity  Pleading, 
Code  Pleading  and  Statutory  Rights  and  Remedies. 

In  his  practice  at  the  bar  Mr.  Bashford  has  been  connected 
with  important  litigation  of  a  public  as  well  as  private  char- 
acter, and  has  been  unusually  successful.  He  was  special  coun- 
sel for  the  State  in  the  actions  brought  in  1891  to  recover  from 
the  former  state  treasurers  of  Wisconsin  interest  moneys  received 
by  them  upon  the  deposits  of  the  public  funds  in  the  banks,  in 
which  judgments  to  the  amount  of  over  half  a  million  dollars  were 
secured.  Mr.  Basbford  was  counsel  for  the  Secretary  of  State  in 
the  suit  brought  in  the  Supreme  Court  of  Wisconsin  in  1904  to 
test  the  regularity  of  the  two  Republican  state  conventions  held 
that  year,  each  of  which  nominated  a  state  ticket  and  elected  dele- 
gates to  the  national  convention.  The  litigation  resulted  in  sus- 
taining the  validity  of  the  ticket  headed  by  Governor  LaFollette, 
although  the  National  Republican  convention  seated  the  delegates 
chosen  by  the  rival  convention.  Mr.  Bashford  was  special  counsel 
in  the  suit  brought  in  1906  to  test  the  validity  of  the  inheritance 
tax  law  of  the  state,  and  which  was  upheld  by  the  Supreme  Court 
of  Wisconsin. 

Mr.  Bashford  has  taken  an  interest  in  public  affairs,  and  served 
as  City  Attorney  and  Mayor  of  Madison,  State  Senator  from 
Dane  County  and  member  of  the  Supreme  Court  by  appointment 
of  the  governor.  He  is  now  engaged  in  active  practice,  devoting 
his  entire  time  to  professional  business,  and  is  associated  with 
Mr.  Rex  Welton  under  the  firm  name  of  Bashford  &  Welton,  at 
Madison,  Wisconsin. 


NEGOTIABLE   INSTRUMENTS. 


By  R.  M.  BASHFORD. 


This  lecture  is  written  for  the  American  Correspond- 
ence School  of  Law  to  be  read  in  connection  with  Vol. 
VI  of  Chadman's  Cyclopedia  of  Law,  treating  of  Nego- 
tiable Instruments  and  Principal  and  Surety.  It  is 
limited  as  to  the  number  of  words,  and  no  attempt  is 
made  to  treat  the  different  subjects  considered  in  an  ex- 
haustive manner.  Legal  principles  are  stated  concisely 
and,  it  is  believed,  comprehensively  and  accurately.  The 
definitions  and  rules  are  elementary  and  are  derived 
largely  from  the  excellent  work  on  Negotiable  Instru- 
ments by  Mr.  Daniel,  which  should  have  a  place  in  the 
library  of  every  practicing  lawyer.  An  extensive  cita- 
tion of  authorities  is  not  deemed  necessary,  as  they  may 
readily  be  found  by  consulting  the  treatise  mentioned  or 
by  reference  to  any  standard  digest. 

Commercial  paper  had  its  origin  in  the  usage  of  trade 
where,  instead  of  cash  payment,  a  writing  was  given 
evidencing  the  consideration,  which  it  might  be  desirable 
to  transfer  to  another  person  at  a  different  place,  or  later 
at  the  same  place.  This  usage  of  merchants  with  other 
customs  essential  to  commercial  transactions,  grew  into 
a  body  of  laws  known  as  the  Law  Merchant  or  Mercan- 
tile Law.  The  Law  Merchant  is  founded  on  custom, 
and  is  the  offspring  of  usage  and  convenience.  It  has 
grown  with  the  extension  of  commerce  and  has  been  en- 
larged and  its  boundaries  defined  by  statutory  enact- 
ments and  by  judicial  construction.  At  the  outset  it  was 
administered  by  separate  tribunals,  but  for  the  last  two 


8  American  Correspondence  School  of  Lmc. 

hundred  years  has  been  under  the  jurisdiction  of  Com- 
mon Law  courts.  For  definition  and  sources  of  the 
Common  Law  see  Chapter  II,  Vol.  I,  of  the  Cyclopedia. 

Negotiable  paper  includes  all  choses  in  action  which 
were  recognized  as  possessing  the  quality  of  transfer- 
ability.  A  "chose  in  action"  is  the  right  to  recover  a 
thing  as  distinguished  from  the  thing  itself,  including 
contracts  and  promises  which  confer  on  one  party  the 
right  to  recover  a  personal  chattel  or  a  sum  of  money 
from  another  by  action.  Under  the  old  rule  of  the  com- 
mon law  a  chose  in  action  was  not  the  subject  of  trans- 
fer so  that  the  assignee  thereof  could  sue  in  his  own 
name ;  but  a  suit  might  be  brought  in  equity  in  the  name 
of  the  assignor  for  the  benefit  of  the  assignee,  subject, 
however,  to  all  rights  existing  between  the  original  par- 
ties. The  inconvenience,  uncertainty  and  delay  of  such  a 
procedure  led  to  the  recognition  among  merchants  of  a 
custom  to  treat  certain  choses  in  action  in  the  form  of 
a  written  direction  or  promise  to  pay  a  certain  sum  of 
money  to  another  as  transferable,  and  enforceable  by 
the  holder  in  his  own  name  and  in  his  own  right,  and  this 
custom  became  part  of  the  Law  Merchant,  and  as  such 
was  later  recognized  and  enforced  in  the  common  law 
courts. 

Commercial  paper  includes  all  choses  in  action  which, 
under  the  existing  common  law,  possess  the  quality  of 
transfer  ability  and  embraces  all  evidences  of  indebted- 
ness which  are  commonly  used  in  the  transaction  of  busi- 
ness as  the  representatives  of  money  for  the  purpose  of 
transferring  credits.  As  here  defined,  it  includes  negoti- 
able and  non-negotiable  instruments.  De  Hass  v.  Dibert, 
70  Fed.  227,  17  C.  C.  A.  79,  30  L.  R.  A.  189. 

Negotiable  instruments  include  all  written  orders  or 
promises  for  the  payment  of  a  certain  sum  of  money  by 


Negotiable  Instruments.  9 

one  person  to  the  order  of  another,  or  to  bearer,  and 
which  are  transferable,  if  payable  to  order  by  indorse- 
ment, if  payable  to  bearer,  by  a  mere  delivery  of  the 
paper.  Xegotiable  paper  when  so  transferred  before 
maturity,  in  good  faith  in  the  usual  course  of  business 
and  for  a  valuable  consideration,  carries  the  right  to 
recover  the  full  amount  as  against  the  makers  and  in- 
dorsers,  if  any,  without  regard  to  claims  on  their  behalf 
of  failure  or  want  of  consideration  or  of  payment  or 
offsets,  as  in  such  case  inquiry  is  not  permitted  as  to  the 
original  consideration  or  other  defenses  -between  the 
prior  parties,  or  as  to  the  title,  although  the  instrument, 
after  execution,  may  have  been  stolen  and  put  into  cir- 
culation. It  is  this  quality  of  negotiability  that  gives 
commercial  paper  its  superior  character  and  enables  it 
to  pass  as  the  representative  of  money  in  business  trans- 
actions. The  words  essential  to  negotiability  are,  "or 
order,"  "or  bearer,"  or  words  of  like  significance. 

A  non-negotiable  instrument  does  not  contain  the 
words,  "or  order,"  "or  bearer"  in  connection  with  the 
person  to  whom  payment  is  to  be  made,  or  if  so,  the  time 
of  payment  may  have  passed ;  nevertheless  the  purchaser 
acquires  the  right  of  his  transferee  but  holds  subject  to 
all  defenses  existing  between  the  prior  parties.  The 
transferability  of  the  paper  and  the  presumption  of  con- 
sideration distinguish  it  from  other  choses  in  action 
which  were  not  assignable  at  common  law  and  where  no 
consideration  was  presumed. 

Negotiable  paper  embraces  bills  of  exchange,  promis- 
sory notes,  checks,  certificates  of  deposit  and  orders 
drawn  by  any  person  or  corporation  directing  the  pay- 
ment to  another  or  to  order  or  to  bearer  of  a  certain 
sum  of  money.  Warehouse  receipts  and  similar  paper 
is  made  negotiable  by  statute  in  many  states.  These 


10  American  Correspondence  School  of  Law. 

instruments  all  partake  of  the  characteristics  of  bills  or 
notes  and  they  will  be  treated  as  belonging  to  one  or  the 
other  of  those  classes.  The  earliest  form  of  negotiable 
paper  was  the  bill  of  exchange  which  was  originally  em- 
ployed solely  by  merchants  for  the  purpose  of  foreign 
trade,  and  to  avoid  the  sending  of  money  from  one  coun- 
try to  another  involving  the  risk  and  cost  of  transpor- 
tation and  possibly  the  expense  of  recoinage.  Its  use 
soon  became  general  by  all  classes  of  persons,  in  domes- 
tic as  well  as  foreign  transactions,  and  it  then  became 
an  important  instrument  for  the  transfer  of  credits  at 
home  as  well  as  abroad. 

A  bill  of  exchange  is  an  unconditional  order  by  the 
person  signing  it  on  another,  directing  him  to  pay  to  a 
third  person  or  to  his  order  or  to  bearer,  the  sum  of 
money  therein  named,  at  the  time  indicated. 

The  person  who  draws  the  bill  is  called  the  drawer, 
the  person  on  whom  it  is  drawn,  the  drawee,  and  the 
person  in  whose  favor  it  is  drawn,  the  payee.  When 
the  drawee  accepts  the  bill  and  not  before,  he  becomes 
liable  for  its  payment,  and  may  then  be.  called  the  accep- 
tor. An  acceptance  is  customarily  made  by  writing  the 
word  "accepted"  upon  the  face  of  the  bill  and  signing 
thereunder  the  name,  but  there  is  no  particular  place 
and  no  uniform  formula  observed. 

Bills  of  exchange  are  divided  into  two  classes,  for- 
eign and  inland.  A  foreign  bill  is  drawn  in  one  state 
or  country  and  made  payable  in  another;  an  inland  bill 
is  drawn  and  made  payable  in  the  same  state  or  country. 
The  place  of  payment,  and  not  the  residence  of  the  par- 
ties, determines  the  character  of  the  bill;  thus  a  bill 
drawn  by  A  in  Chicago  addressed  to  B  and  payable  to 
C  in  New  York,  all  the  parties  being  residents  of  Illi- 
nois, is  a  foreign  bill  of  exchange.  The  chief  distinc- 


Negotiable  Instruments.  11 

tion  between  foreign  and  inland  bills  is  that  a  foreign 
bill  is  governed  by  the  law  of  the  place  where  it  is 
payable  while  an  inland  bill  is  controlled  by  the  law  of 
the  place  where  drawn,  that  being  the  place  also  where  it 
is  made  payable.  Furthermore,  it  is  necessary  to  protest 
foreign  bills  for  non-acceptance  or  for  non-payment  in 
order  to  hold  the  drawer  and  indorsers,  but  it  is  not 
generally  necessary  to  protest  inland  bills. 

One  copy  only  is  usually  made  of  inland  bills,  but  it  is 
the  general  custom  to  issue  several  copies  of  a  foreign 
bill  payable  in  a  foreign  country,  three  and  sometimes 
four,  in  order  to  avoid  the  inconvenience  and  delay  that 
might  be  occasioned  by  the  loss  of  a  single  copy.  These 
copies  become  a  set  of  exchange,  and  constitute  one  bill. 
They  may  all  be  negotiated  but  when  one  of  the  parts  is 
accepted  and  paid  all  the  others  are  extinguished.  If 
the  bill  is  issued  in  sets,  the  recital  upon  its  face  indicates 
the  fact  and  number  thereof.  The  drawee  should  accept 
but  one  of  the  parts  and  upon  payment  should  demand 
its  surrender.  It  is  the  duty  of  a  purchaser  of  a  foreign 
bill  to  inquire  after  the  other  parts  which  are  missing, 
and  he  cannot  therefore  be  an  innocent  holder  where  one 
of  the  parts  has  already  been  negotiated. 

When  one  person  draws  a  bill  upon  another  in  favor 
of  a  third  person,  it  is  implied  that  the  drawee  has  funds 
belonging  to  the  drawrer  or  that  he  is  indebted  to  him 
to  an  amount  sufficient  to  meet  the  sum  of  money 
ordered  to  be  paid.  This,  however,,  is  not  essential  to 
the  validity  of  the  bill.  When  the  drawee  accepts  un- 
conditionally, his  obligation  to  pay  the  holder  is  absolute 
and  not  at  all  dependent  upon  his  indebtedness  or  his 
possession  of  funds  belonging  to  the  drawer. 

A  promissory  note  is  an  unconditional  promise  by  one 
person  to  pay  to  another,  or  to  his  order,  or  to  bearer, 


12  American  Correspondence  School  of  Laic. 

a  certain  sum  of  money  at  a  specified  time.  The  per- 
son who  signs  the  note  is  called  the  maker,  and  the  per- 
son to  whom  it  is  payable,  the  payee.  To  be  negotiable, 
the  note  must  be  payable  to  order  or  to  bearer. 

Paper  payable  to  order  is  transferable  by  indorse- 
ment; if  payable  to  bearer,  by  delivery  merely.  The 
endorsement  is  the  writing  of  the  name  of  the  payee  on 
the  back  of  the  paper,  who  thereby  becomes  the  indorser. 
The  indorsement  may  direct  the  payment  of  the  paper  to 
another  or  to  his  order,  or  to  bearer,  or  it  may  be  in  blank, 
that  is  without  the  name  of.  the  payee  or  indorsee.  The 
indorsement  is  an  independent  contract  and  in  order  to 
be  negotiable  must  be  in  blank  or  it  must  direct  payment 
to  the  order  of  another,  or  to  bearer. 

The  bill  or  note  may  be  in  any  form  of  words  provided 
it  be  an  unconditional  order  or  promise  for  the  payment 
of  money  at  the  time  specified.  If  a  negotiable  instru- 
ment be  so  drawn  that  it  is  uncertain  whether  it  is  in- 
tended to  be  a  bill  or  note,  the  holder  may  treat  it  as  one 
or  the  other  as  he  prefers.  An  order  or  promise  to  pay 
out  of  a  particular  fund  is  not  negotiable  as  it  does  not 
direct  payment  at  all  events;  but  an  absolute  order  to 
pay  coupled  with  a  direction  to  the  drawee  to  reimburse 
himself  out  of  a  particular  fund  is  a  negotiable  instru- 
ment. 

The  date  is  usually  inserted  in  a  bill  or  note,  but  this 
is  not  essential  to  negotiability.  If  the  instrument  is 
payable  at  a  certain  time  after  date,  at  sight,  or  on 
demand,  it  should  be  dated,  but  evidence  is  admissible  to 
show  on  what  day  such  paper,  if  not  dated,  was  issued, 
or  if  that  cannot  be  shown,  when  it  was  last  negotiated, 
and  it  takes  effect  from  such  delivery.  When  an  un- 
dated instrument  is  issued  and  delivered  to  the  payee, 
the  presumption  of  law  is  that  he  is  authorized  to  insert 


\e  got  table  Instruments.  13 

the  date,  and  the  maker  will  be  bound  thereby,  at  least 
to  an  innocent  holder  for  value.  A  bill  or  note  is  fre- 
quently ante-dated  or  post-dated  for  the  purpose  of 
accelerating  or  postponing  payment,  and  negotiated 
prior  or  subsequent  to  the  day  of  its  date.  In  such 
case  if  it  becomes  material  to  protect  the  rights  of  the 
holder,  evidence  is  admissible  to  show  when  the  paper 
was  in  fact  issued,  and  it  takes  effect  from  that  time. 
The  paper  is  presumed  to  have  been  issued  on  the  day 
it  bears  date. 

There  are  certain  requisites  relating  to  the  execution 
of  the  instrument,  essential  to  negotiability,  which  must 
be  strictly  observed,  and  which  will  here  be  briefly  con- 
sidered. There  must  be  certainty  as  to  all  the  component 
parts  of  the  paper  to  make  it  negotiable. 

First.  The  order  or  promise  must  be  ''open"  that  is 
unsealed.  A  seal  usually  destroys  the  negotiability  of 
paper,  but  an  exception  is  recognized  with  respect  to 
paper  issued  by  business  corporations,  when  it  is  ap- 
parent upon  its  face  that  the  paper  was  issued  for  the 
purpose  of  negotiation.  This  exception  extends  to  cou- 
pon bonds  whether  issued  by  a  corporation  or  an  indi- 
vidual. 2  Daniel  on  Xegotiable  Instruments,  Sec.  1487. 

Second.  The  name  of  the  drawer  of  the  bill  or  the 
maker  of  the  note  must  appear  upon  the  face  of  the 
paper  in  such  form  as  to  leave  no  uncertainty  as  to  the 
person  issuing  the  same,  or  bound  for  its  payment.  The 
name  is  usually  written  in  ink  at  the  lower  right-hand 
corner,  but  the  place  is  not  material  if  it  is  clear  from  the 
face  of  the  paper  that  it  was  intended  to  be  issued  as  a 
negotiable  instrument  by  the  person  whose  signature  is 
thereto  affixed.  The  instrument  may  be  executed  by 
more  than  one  person,  and  the  same  certainty  is  re- 
quired as  to  the  obligation  thus  assumed.  If  the  signa- 


14  American  Correspondence  School  of  Laic. 

tures  should  be  in  the  alternative,  "A.  B."  or  else  "C. 
D."  the  paper  would  not  be  negotiable  unless  it  ap- 
peared upon  its  face  that  the  liability  of  one  was  absolute 
and  the  other  conditional,  when  the  conditional  liability 
might  be  treated  as  surplusage  and  the  absolute  liability 
enforced.  If  the  paper  is  signed  by  more  than  one  per- 
son, it  is  either  joint  or  several  according  to  the  words 
employed.  If  the  word  "we"  is  used  in  the  body  of  the 
instrument,  or  the  word  "jointly,"  it  is  a  joint  obligation, 
while  if  the  word  "I"  is  so  employed,  or  the  words 
"jointly  and  severally,"  it  is  a  several  obligation.  If  the 
obligation  is  joint,  but  one  action  can  be  maintained 
upon  it  which  should  be  against  all;  if  it  be  joint  and 
several,  the  action  may  be  brought  against  all  or  against 
each  one  separately  to  enforce  payment. 

Third.  The  drawee  must  be  designated  in  the  bill 
with  reasonable  certainty.  His  name  is  usually  written 
on  the  face  of  the  paper  at  the  lower  left  hand  corner, 
but  the  place  of  the  address  is  not  material  provided  it 
clearly  appears  who  was  intended,  especially  when  the 
bill  has  been  accepted  by  such  drawee.  The  bill  may  be 
addressed  to  two  or  more  drawees,  and  each  must  ac- 
cept individually  in  order  to  be  bound,  unless  they  are 
partners  when  an  acceptance  by  one  is  sufficient.  It  is 
not  essential  to  the  negotiability  of  the  bill,  when  ad- 
dressed to  two  or  more,  that  all  should  accept,  as  it  may 
be  negotiated  with  the  acceptance  of  one  or  more  at 
the  option  of  the  holder.  A  bill  may  designate  one  or 
one  or  more  persons  in  addition  to  the  drawee  to  whom 
resort  may  be  had  in  the  event  of  its  being  dishonored  by 
the  drawee,  and  this  does  not  impair  its  negotiability. 

Fourth.  The  instrument  to  be  negotiable  must  desig- 
nate M'ith  certainty  the  payee,  the  party  who  is  to  receive 
payment.  The  person  need  not  be  named  if  it  suffi- 


Negotiable  Instruments.  15 

ciently  appears  that  the  holder  at  maturity  is  entitled 
to  recover  the  amount.  The  paper  may  be  made  payable 
to  bearer,  or  to  holder,  or  to  a  guardian  of  an  infant,  or 
to  the  trustee  of  an  estate,  or  to  the  cashier  of  a  bank, 
or  other  officer  of  a  corporation.  A  mistake  or  ambi- 
guity in  naming  the  payee  will  not  destroy  the  negotia- 
bility of  an  instrument  if  it  can  be  shown  by  extrinsic 
evidence  who  was  intended.  Commercial  paper  payable 
to  a  particular  person  without  words  of  negotiability, 
is  valid  between  the  parties  and  is  subject  to  assignment, 
but  is  not  negotiable.  The  instrument  may  be  payable 
to  two  or  more  joint  payees  and  their  interests  are  pre- 
sumed to  be  co-equal  and  it  majr  be  negotiated  by  the  in- 
dorsement of  all  of  them.  If  such  paper  is  payable  to 
two  or  more  persons  in  the  alternative,  it  is  not  negotiable 
but  it  may  be  enforced  between  the  parties.  If  the  payee 
named  in  the  paper  be  a  fictitious  person  and  it  be  nego- 
tiated by  the  maker,  it  may  be  enforced  against  him  and 
the  indorsers  having  knowledge  of  the  fact,  as  if  payable 
to  bearer.  A  bill  or  note  may  be  made  payable  to  the 
order  of  the  drawer  or  maker,  and  when  negotiated  by 
indorsement  may  be  enforced,  as  there  are  then  two  par- 
ties to  the  transaction.  A  bill  of  exchange  may  be  drawn 
by  the  drawer  upon  himself  payable  to  his  own  order 
and  the  drawer,  the  drawee  and  payee  will  then  be  the 
same  person,  and  when  transferred  by  indorsement  it  is 
a  valid  negotiable  instrument.  In  such  case  the  holder 
may  treat  the  paper  as  either  a  bill  of  exchange  or  a 
promissory  note,  as  the  drawer  is  bound  without  notice 
of  dishonor,  as  he  thereby  guarantees  that  he  will  honor 
the  bill. 

Fifth.  The  obligation  to  pay  must  be  certain.  The 
bill  must  therefore  contain  a  distinct  order  and  the  note 
a  distinct  promise  to  pay  the  sum  of  money  therein 


1C  American  Correspondence  School  of  Lmc. 

stated.  No  particular  form  of  words  need  be  employed, 
provided  they  clearly  convey  the  purpose  of  the  drawer 
or  maker  with  respect  to  the  payment.  The  obligation 
to  pay  must  be  absolute  and  unconditional  or  the  instru- 
ment will  not  be  negotiable. 

Sixth.  The  amount  to  be  paid  must  be  certain,  and 
should  be  stated  in  the  body  of  the  instrument,  although 
a  note  has  been  held  negotiable  where  the  amount  could 
be  ascertained  with  exactness  from  other  parts  of  the 
paper.  Smith  v.  Clopton,  4  Texas  109.  A  bill  or  note 
payable  with  exchange  is  negotiable  as  current  ex- 
change is  commonly  known  in  commercial  circles,  and 
may  be  readily  ascertained  by  any  holder  of  the  paper 
on  the  day  of  payment.  A  stipulation  to  pay  attorney 
fees  or  costs  of  collection  contained  in  a  note,  may  not 
destroy  its  negotiability,  although  decisions  upon  the 
subject  are  not  uniform.  Morgan  v.  Edwards,  53  Wis. 
599;  Peterson  v.  Bank,  78  Wis.  113.  An  agreement 
subjoined  to  a  note,  stating  that  it  is  given  for  personal 
property,  the  title  to  which  is  to  remain  in  the  payee 
until  payment,  does  not  render  the  note  non-negotiable. 
Kimball  Co.  v.  Mellen,  80  Wis.  133.  It  is  also  essential 
to  negotiability  that  the  instrument  should  be  payable 
in  money  or  its  equivalent.  Money  is  a  generic  and 
comprehensive  term  and  includes  whatever  is  lawfully 
and  actually  current  in  buying  and  selling,  as  of  the 
value  and  as  the  equivalent  of  coin.  Klauber  v.  Bigger- 
staff,  47  Wis.  551.  A  bill  or  note,  therefore,  payable  in 
currency  or  in  bank  notes  would  now  be  considered  as 
negotiable,  but  would  not  be,  if  it  called  for  payment  in 
goods  or  other  personal  property.  It  is  not  essential 
that  the  paper  be  payable  in  the  money  of  the  place  of 
execution  or  payment,  provided  the  particular  denomi- 
nation of  the  foreign  money  is  stated  in  the  instrument 
so  that  its  equivalent  value  can  be  ascertained. 


Negotiable  Instruments.  17 

Seventh.  The  time  of  payment  must  be  specified  or 
indicated  with  reasonable  certainty  in  the  paper  in  order 
to  be  negotiable.  Indefiniteness  or  remotness  of  the  day 
of  payment  does  not  impair  the  negotiability  of  the  in- 
strument, provided  that  the  time  therein  stated  must 
arrive  sooner  or  later,  or  may  be  accelerated  at  the  op- 
tion of  the  holder.  An  instrument  is  therefore  negotia- 
ble that  is  payable  on  or  before  a  certain  date,  or  if  pay- 
able in  installments,  with  the  stipulation  that  upon  fail- 
ure to  pay  any  one  of  the  installments  the  entire  amount 
shall  thereupon  become  payable.  Thorpe  v.  Mindeman, 
123  Wis.  149,  159.  A  note  payable  upon  the  maker's 
death  is  negotiable,  as  the  event  is  certain,  but  if  payable 
when  he  reaches  a  certain  age,  it  is  not,  as  the  (Jay  may 
never  arrive.  A  statement  in  the  paper  explaining  the 
consideration  for  which  it  is  given  will  not  destroy  its 
negotiability,  if  it  does  not  render  the  payment  condi- 
tional, nor  will  a  reference  to  collateral  securities  have 
such  effect.  Thorpe  v.  Mindeman,  123  Wis.  149.  A 
note  payable  "when  convenient,"  or  "as  soon  as  I  can," 
or  "when  I  am  able,"  has  been  held  negotiable  by  courts, 
which  construe  the  language  to  mean  within  a  reasonable 
time  and  then  determine  such  time,  but  the  weight  of 
authority  seems  to  be  to  the  contrary.  Tiedeman  on 
Commercial  Paper,  Section  25b.  A  note  is  negotiable 
which  authorizes  the  confession  of  judgment  for  the 
amount  due  if  not  paid  at  maturity;  but  a  stipulation 
therein  authorizing  the  entry  of  judgment  at  any  time 
after  date,  whether  due  or  not,  and  the  immediate  issue 
of  execution  would  render  the  note  non-negotiable.  Wis: 
Y.  Meeting  v.  Babler,  115  Wis.  289.  An  instrument 
payable  out  of  a  particular  fund  is  not  negotiable,  as  its 
payment  becomes  conditional  upon  the  existence  and 
adequacy  of  such  fund  at  maturity;  but  the  indication 


18  American  Correspondence  School  of  Laic. 

of  a  fund  from  which  reimbursement  may  be  made  is 
not  objectionable  if  it  does  not  render  payment  condi- 
tional thereon. 

The  place  of  payment  need  not  be,  though  it  fre- 
quently is,  stated  in  the  bill  or  note.  If  no  place  is  men- 
tioned, then  the  paper  is  payable  at  the  place  of  business 
or,  if  he  has  none,  at  the  residence  of  the  payor.  If  the 
bill  is  addressed  to  the  drawee  at  one  place  or  another 
in  the  alternative,  the  place  of  payment  is  presumed  to 
be  where  he  accepts  the  bill.  If  the  place  of  payment 
is  designated  by  the  drawer  he  will  be  discharged  unless 
it  is  there  presented,  as  well  as  the  indorsers.  If  the 
paper  is  made  payable  at  a  particular  place  and  not  else- 
where, it  must  be  presented  for  payment  at  that  place 
or  all  parties  will  be  discharged  except  the  acceptor  of 
the  bill  or  the  maker  of  the  note,  who  would  not  be  re- 
leased except  to  the  extent  of  the  interest  that  might 
accrue  after  maturity  and  prior  to  the  making  of  per- 
sonal demand  of  payment.  It  is  customary  to  insert  in 
commercial  paper  the  words  "value  received"  or  others 
of  like  import  as  acknowledgment  of  the  consideration 
by  the  payee,  but  such  words  are  not  necessary  to  the  ne- 
gotiabiity  of  the  paper.  If  the  elements  above  men- 
tioned as  essential  to  negotiability  are  contained  in  the 
paper,  a  sufficient  consideration  is  presumed. 

Delivery  is  essential  to  the  validity  of  any  written 
contract,  and  as  long  as  negotiable  paper  remains  in 
the  hands  of  the  maker  it  is  a  nullity.  Delivery  may  be 
made  personally,  or  by  mail  or  express,  or  as  an  escrow, 
that  is  to  a  third  person  to  be  held  by  him  until  the  hap- 
pening of  a  certain  event  when  the  title  is  to  pass  to 
the  person  indicated.  If  the  event  never  occurs  and 
the  custodian  wrongfully  turns  over  the  instrument  to 
the  payee,  it  is  void  even  in  the  hands  of  an  innocent 


Negotiable  Instruments.  19 

holder.  Chipman  v.  Tucker,  38  Wis.  43.  It  is  common 
in  commercial  circles  for  a  note  or  bill  to  be  executed  in 
blank  and  delivered  to  another  to  fill  up  and  transfer 
for  the  benefit  of  the  maker,  or  for  his  own  benefit,  and 
paper  so  issued  carries  on  its  face  an  implied  authority 
to  perfect  and  negotiate  the  instrument ;  and  the  person 
to  whom  the  paper  is  entrusted  must  be  deemed  the 
agent  of  the  maker,  who  is  bound  by  his  acts  after 
transfer  to  an  innocent  holder.  Bank  v.  Neal,  63 
U.  S.  96. 

The  law  merchant  and  the  common  law  coincide  as 
to  the  essentials  of  a  contract;  there  must  be  competent 
parties,  a  union  of  minds  and  a  sufficient  consideration. 
The  capacity  of  a  party  to  incur  liability  on  commercial 
paper  is  co-extensive  with  his  power  to  transact  business 
and  incur  trade  obligations,  and  he  may  act  through  the 
agency  of  another  being  equally  bound  thereby  as 
though  the  act  were  performed  by  himself.  There  is 
this  distinction,  however,  to  be  observed  with  respect  to 
the  power  of  an  agent  to  execute  commercial  paper :  the 
authority  to  execute  or  to  indorse  bills  and  notes  will  not 
be  implied  from  express  authority  to  an  agent  to  trans- 
act some  other  business,  unless  it  is  absolutely  necessary 
to  the  exercise  of  the  power  actually  conferred  upon  him 
by  the  principal,  or  unless  the  agent  holds  a  position  pre- 
sumably conferring  such  power,  as  the  cashier  of  a  bank. 
In  the  execution  of  a  note  or  bill,  the  agent  should  sign 
the  name  of  the  principal  and  then  add  his  own  name  as 
agent.  If  the  agent  affixes  only  his  own  name  he  will  be 
personally  liable,  and  in  a  suit  against  him  on  the  instru- 
ment, he  cannot  show  by  parol  evidence  that  he  intended 
to  act  for  his  principal  and  not  for  himself.  'Where 
paper  is  signed  by  an  agent  without  designating  the 
name  of  the  principal,  the  holder  may  show  by  parol  who 


20  American  Correspondence  School  of  Law. 

the  principal  is  and  enforce  payment  of  the  paper 
against  him.  Conroe  v.  Case,  79  Wis.  338. 

The  union  of  minds  of  the  parties  is  evidenced  by 
delivery  of  the  paper,  which  has  already  been  considered. 

Commercial  paper  must  be  founded  on  a  valuable 
consideration,  but  such  consideration  is  presumed  when 
the  instrument  is  negotiable  and  also  when  non-negotiar 
ble,  if  it  contains  an  acknowledgment  thereof  upon  its 
face.  The  want  or  failure  of  consideration  is  always  a 
defence  in  an  action  between  the  original  parties  and 
those  sustaining  the  same  relation  to  each  other,  such  as 
the  indorser  and  his  immediate  indorsee ;  but  when  nego- 
tiable paper  has  been  properly  transferred  for  value  to 
an  innocent  holder,  the  consideration,  if  lawful,  is  not 
subject  to  inquiry  or  attack.  When  the  instrument  has 
been  negotiated  to  a  third  party  there  are  tAvo  consid- 
erations involved,  that  which  the  maker  received  when 
the  paper  was  issued  and  that  which  the  holder  paid 
when  he  purchased  it,  and  in  an  action  by  such  remote 
party  against  the  maker  both  considerations  must  fail  to 
defeat  a  recovery.  Hoffman  v.  Bank,  79  U.  S.,  p.  190. 
The  true  relation  of  the  parties,  if  it  does  not  appear 
on  the  face  of  the  instrument,  or  by  its  indorsement,  may 
be  shown  by  parol  evidence  and  thus  open  up  the  ques- 
tion of  consideration  if  the  parties  stand  toward  each 
other  in  the  same  right  as  maker  and  payee  or  as  in- 
dorser and  immediate  indorsee.  Peterson  v.  Johnson, 
22  Wis.  21.  The  same  consideration  will  support  the 
obligation  of  all  who  unite  in  executing  the  paper, 
whether  as  joint  makers,  sureties  or  guarantors,  and  the 
presumption  is  that  the  signatures  were  affixed  before 
the  delivery  of  the  instrument.  The  signing  of  the 
paper  by  a  third  party  after  its  delivery  without  a  new 
consideration  creates  no  liability  against  him  as  the  orig- 


Negotiable  Instruments.  •  21 

• 

inal  consideration  will  not  support  his  undertaking,  un- 
less made  in  pursuance  of  a ,  previous  promise  to  the 
payee  as  an  inducement  to  the  acceptance  of  the  paper. 

Accommodation  paper  is  the  loan  of  credit  and,  as 
there  is  no  valuable  consideration  moving  to  the  maker 
thereof,  it  has  no  validity  until  negotiated,  when  it  is 
enforceable  by  a  holder  for  value,  although  with  knowl- 
edge of  its  character. 

There  are  two  kinds  of  consideration,  good  and  valu- 
able. Natural  love  and  affection  constitute  a  good  con- 
sideration, sufficient  to  uphold  an  executed  contract. 
Anything  of  pecuniary  worth  constitutes  a  valuable 
consideration  which  is  essential  to  support  commercial 
paper.  A  moral  obligation  is  a  sufficient  consideration 
for  negotiable  paper  when  it  is  founded  upon  an  ante- 
cedent legal  obligation  voidable  at  the  election  of  the 
promisor,  such  as  a  debt  barred  by  the  statute  of  lim- 
itations. Valuable  considerations  include  money  as  the 
most  common,  the  transfer  of  property,  service  rendered 
or  to  be  rendered,  an  existing  debt,  delay  or  forbearance 
in  the  enforcement  of  an  existing  obligation,  indemnity 
for  a  liability  assumed  by  the  payee  for  the  maker,  or 
the  compromise  of  a  claim  asserted  in  good  faith  in  a 
transaction  which  is  not  illegal.  Brooks  v.  Wage,  85 
Wis.  12. 

Where  the  consideration  is  voidable  as  against  public 
policy,  or  made  so  by  statute  the  contract  cannot  be  en- 
forced as  between  the  original  parties;  but  an  innocent 
holder  for  value  of  negotiable  paper  founded  upon  such 
consideration  may  recover  thereon.  If,  however,  the 
statute  prohibits  the  transaction  under  a  penalty,  or  de- 
clares that  a  contract  founded  upon  consideration  there- 
for to  be  absolutely  void,  a  negotiable  instrument  issued 
in  fulfillment  thereof  is  invalid  even  in  the  hands  of  an 


23  American  Correspondence  School  of  Laic. 

innocent  holder  for  value.  Where  a  part  of  the  consid- 
eration is  so  illegal,  it  taints  the  entire  instrument  and 
there  can  be  no  recovery  thereon.  Barnard  v.  Backhaus, 
52  Wis.  593. 

A  bill  of  exchange  is  not  complete  until  it  has  been 
accepted,  although  it  is  subject  to  negotiation  as  soon 
as  delivered  to  the  payee.  The  drawee  is  not  liable  be- 
fore he  has  accepted  the  bill,  although  he  is  in  possession 
of  funds  of  the  drawer  sufficient  to  pay  the  amount.  An 
acceptance  is  an  engagement  on  the  part  of  the  drawee 
to  pay  the  bill  .according  to  the  terms  of  acceptance,  and 
a  general  acceptance  is  an  engagement  to  pay  according 
to  the  tenor  of  the  bill.  The  act  of  accepting  a  bill  is 
like  the  making  of  a  note ;  it  is  the  execution  of  a  contract 
by  which  the  acceptor  undertakes  to  pay  the  amount 
specified  to  the  payee  or  holder  thereof  when  the  same 
becomes  due;  the  acceptor  is  supposed  to  pay  the  bill 
out  of  funds  belonging  to  the  drawer,  but  his  liability 
becomes  absolute  and  primary  for  the  amount  thereof 
when  the  acceptance  is  made. 

It  is  the  duty  of  the  holder  of  a  bill  to  present  it  to 
the  drawee  seasonably  for  acceptance  and  if  he  fails  to 
do  so  he  will  discharge  the  indorsers,  if  any,  and  the 
drawer  as  well.  If  acceptance  is  refused  the  bill  is  dis- 
honored and  should  be  protested  if  a  foreign  bill;  and 
in  all  cases  of  refusal  to  accept  notice  should  be  given 
immediately  to  all  persons  whose  names  appear  thereon 
as  drawers  or  indorsers,  and  suit  may  then  be  brought 
against  them  for  the  amount  even  though  the  paper  has 
not  matured.  A  bill  payable  on  demand  or  at  a  fixed 
date  in  the  future,  unless  there  is  a  direction  to  that 
effect  or  the  bill  is  sent  to  an  agent  for  collection,  need 
not  be  presented  before  maturity,  when  it  should  be  pre- 
sented for  acceptance  and  payment,  although  it  is  cus- 


Negotiable  Instruments.  23 

ternary  to  present  such  paper  for  acceptance  within  a 
reasonable  time  after  negotiation  in  order  to  ascertain 
whether  it  will  be  honored.  If  in  either  case  acceptance 
is  refused,  there  should  be  protest  and  notice  for  non- 
acceptance  according  to  the  rule  above  stated.  When 
the  bill  is  payable  at  sight  or  after  any  uncertain  event 
and  when  presentment  is  necessary  to  fix  the  date  of 
maturity,  it  should  be  presented  for  acceptance  within 
a  reasonable  time,  and  if  refused  protest  made  and  no- 
tice given  as  already  indicated  to  hold  the  drawer  and 
indorsers.  Presentment  should  be  made  by  the  holder 
of  the  bill  or  his  authorized  agent,  who  should  have  the 
paper  in  his  actual  or  potential  possession  and,  if  a  pro- 
test is  anticipated,  a  notary  public  should  be  employed 
to  make  presentment.  Presentment  should  be  made  at 
a  seasonable  hour  to  the  drawee  or  his  authorized  agent 
at  his  place  of  business,  if  any,  or  at  his  residence.  If 
the  drawee  cannot  be  found,  the  bill  may  be  treated  as 
dishonored  and  protested  for  non-acceptance,  if  protest 
is  necessary,  and  notice  given  to  the  drawer  and  in- 
dorsers. The  drawee  is  entitled  to  a  reasonable  time, 
usually  twenty-four  hours,  to  examine  his  accounts  and 
ascertain  the  correctness  of  the  bill  before  determining 
whether  or  not  he  will  accept,  and  if  he  gives  no  answer 
at  the  expiration  of  the  time  the  paper  should  be  treated 
as  dishonored.  If  the  bill  is  in  two  or  more  parts,  the 
drawee  should  accept  but  one;  otherwise  he  may  make 
himself  liable  to  an  innocent  holder  for  the  payment  of 
more  than  one  of  the  set.  Acceptance  may  be  dispensed 
with  or  waived  by  the  drawer,  and  it  is  presumed  to 
be  when  the  drawer  and  drawee  are  the  same  person  or 
members  of  the  same  firm  or  officers  of  the  same  cor- 
poration. An  acceptance  is  usually  made  by  writing 
the  word  "accepted"  across  the  face  of  a  bill  and  adding 


2-i  American  Correspondence  School  of  Laic. 

the  signature  of  the  drawee,  and  the  holder  may  refuse 
to  take  any  other,  although  any  other  writing  on  the 
bill  or  upon  a  separate  paper  signifying  an  intention  on 
the  part  of  the  drawee  to  accept  might  be  sufficient  to 
charge  him  with  liability. 

Acceptance  may  be  implied  by  the  acts  of  the  drawee, 
as  where  the  bill  is  drawn  for  his  own  accommodation, 
or  if  he  having  it  in  his  possession  procures  another  to 
discount  it,  or  by  detention  of  the  bill  under  some  cir- 
cumstances where  it  has  been  presented  to  him  for  action. 
An  agreement  to  accept  will  be  valid  if  made  in  writ- 
ing within  a  reasonable  time  before  or  after  issue,  if 
the  bill  is  taken  by  the  holder  relying  upon  the  promise. 
The  holder  of  the  bill  is  entitled  to  an  absolute  general 
acceptance  and  he  may  refuse  to  take  any  other.  If 
he  takes  a  qualified  or  conditional  acceptance  he  must 
at  once  obtain  the  consent  of  the  drawer  or  indorsers 
or  they  may  be  released.  A  qualified  acceptance  varies 
the  effect  of  the  bill  as  drawn  and  may  be  conditional 
as  to  amount,  the  time  or  place  of  payment  or  upon  the 
possession  of.  funds  of  the  drawer  at  maturity  of  the 
bill.  A  qualified  acceptance  is  binding  upon  the  ac- 
ceptor and  all  subsequent  parties  and  also  upon  all  prior 
parties  who  have  assented,  but  all  prior  parties  who  have 
not  assented  are  discharged,  except  the  drawer  who  is 
not  released  when  the  condition  relates  solely  to  the 
possession  o'f  funds  by  the  drawee  which  he  impliedly 
guarantees.  The  circumstances  under  which  a  bill  may 
be  accepted  by  a  stranger  supra  protest  are  stated  in  the 
Xegotiable  Instruments  Law  and  need  not  be  considered 
here. 

By  a  general  acceptance  the  drawee  admits  that  the 
signatures  to  the  bill  are  genuine,  that  he  has  in  his 
possession  funds  of  the  drawer  for  its  payment,  that 


Instruments.  25 

the  drawer  has  the  capacity  and  the  authority  to  draw 
the  bill  whether  drawn  by  an  agent,  a  partner  or  an 
administrator,  and  also  the  capacity  of  the  payee  to  in- 
dorse when  the  bill  is  payable  to  his  order.  Such  ac- 
ceptance, however,  does  not  admit  the  genuineness  of  the 
payee's  signature  where  the  bill  has  been  indorsed  by 
him  or  the  genuineness  of  the  agent's  signature  or  his 
authority  to  indorse  for  the  payee ;  nor  does  it  admit  the 
genuineness  of  the  body  of  the  bill;  and  if  the  terms  of 
the  bill  have  been  so  altered  as  to  release  the  drawer, 
to  whom  he  has  a  right  to  look  for  reimbursement,  he 
is  discharged. 

The  great  importance  and  peculiar  value  of  nego- 
tiable paper  in  commercial  transactions  is  due  to  the  fact 
that  it  is  subject  to  transfer  free  from  any  claims  or 
defenses  that  may  exist  between  the  original  parties. 
The  transfer  is  made  by  delivery  or  by  indorsement.  If 
payable  to  bearer,  the  delivery  of  a  negotiable  instru- 
ment by  one  holder  to  another  passes  the  complete  legal 
title ;  and  the  same  is  true  where  the  paper  is  payable  to 
order  and  has  been  indorsed  in  blank.  A.  negotiable 
instrument  payable  to  order  can  only  be  regularly  trans- 
ferred by  the  indorsement  of  the  payee,  which  may  be 
made  by  writing  his  name  on  the  back  of  the  paper, 
which  is  called  a  blank  indorsement,  or  by  making  it 
payable  to  the  order  of  another  person,  which  is  called 
a  full  indorsement.  Paper  payable  to  bearer  may  also 
be  transferred  by  indorsement.  The  transfer  of  nego- 
tiable paper  by  mere  delivery  does  not  impose  the  same 
liabilities  upon  the  transferor  as  does  the  negotiation  by 
indorsement.  The  negotiation  of  paper  payable  to 
bearer  by  mere  delivery  warrants  the  title  and  that  the 
instrument  is  legal  and  valid,  that  there  is  a  sufficient 
consideration,  that  the  signatures  thereto  are  genuine 


26  American  Correspondence  School  of  Laic. 

including  any  indorsements,  where  paper  payable  to  or- 
der has  been  made  payable  to  bearer  by  blank  indorse- 
ment; while  in  addition,  the  transferrer  by  indorsement 
guarantees  the  solvency  of  the  parties  to  the  instrument 
and  that  it  will  be  paid  at  maturity.  The  title  to  an 
instrument  payable  to  order  may  be  transferred  by  de- 
livery but  the  assignee  acquires  no  better  title  than  if 
the  instrument  were  non-negotiable.  He  takes  it  sub- 
ject to  any  existing  defenses. 

Indorsement  is  the  writing  of  one's  name  on  nego- 
tiable paper  with  intent  to  transfer  the  title  and  to  incur 
the  liability  of  a  party  who  warrants  payment  of  the 
instrument  provided  it  is  duly  presented  to  the  principal 
at  maturity,  not  paid  by  him,  and  such  fact  is  duly  noti- 
fied to  the  indorser.  The  indorsement  consists  of  the 
signature  of  the  payee  or  prior  indorsee  usually  written 
on  the  back  of  the  paper  for  the  purpose  of  making  the 
transfer.  The  indorsement  is  not  only  the  transfer  of  a 
negotiable  instrument  but  it  is  also  an  independent  con- 
tract and  must  be  supported  by  a  sufficient  consideration. 
The  term  "indorsement"  includes  delivery  which  can 
only  be  completed  by  the  acceptance  of  the  indorsee,  ex- 
press or  implied.  The  indorser  guarantees  that  the 
paper  will  be  honored  by  the  prior  parties;  if  it  be  a 
bill  that  has  not  been  accepted,  that  it  will  be,  on  presen- 
tation and  that  the  instrument  will  be  paid  at  maturity 
If  the  paper  should  not  be  honored  by  the  original  par- 
ties, the  holder  may  proceed  at  once  against  them  or ' 
against  the  prior  indorsers  after  proper  protest  and  no- 
tice of  dishonor.  The  holder  need  not  give  any  notice 
in  order  to  fix  the  liability  of  the  indorsers  upon  the 
implied  warranties  above  mentioned  except  as  to  ac- 
ceptance and  payment  but  may  bring  suit  against  the 
indorsers  immediately  after  the  discovery  of  the  breach 


Negotiable  Instruments.  27 

thereof.  The  indorsement  "without  recourse"  relieves 
the  indorser  from  liability  for  the  dishonor  of  the  paper 
hut  he  nevertheless  guarantees  the  genuineness  of  the 
signatures,  the  competency  of  the  parties,  the  validity  of 
the  title  and  the  legality  of  the  consideration.  He  guar- 
antees that  it  is  the  valid  and  subsisting  obligation  of 
the  parties  whose  names  appear  upon  the  paper.  Such 
an  indorsement  does  not  cast  any  suspicion  upon  the  in- 
strument or  upon  the  financial  responsibility  of  the  par- 
ties. Indorsers  guarantee  the  payment  of  the  paper  to 
all  subsequent  indorsees;  and  in  case  of  non-payment 
each  is  liable  in  the  order  of  the  indorsements  to  every 
subsequent  indorsee  but  not  to  prior  indorsers.  The  in- 
dorsements are  presumed  to  have  been  made  in  the  order 
m  which  they  appear  on  the  instrument,  but  as  between 
themselves  and  subsequent  indorsees  having  notice,  the 
order"  may  be  changed  by  special  agreement,  so  that 
an  indorsement  may  be  treated  as  prior  although  it  ap- 
pears to  be  subsequent.  In  the  absence  of  agreement 
express  or  implied,  there  is  no  liability  for  contribution 
among  successive  indorsers,  even  where  the  indorsements 
were  made  for  accommodation.  Where  the  paper  is  in- 
dorsed by  the  payee  and  a  third  person,  the  legal  pre- 
sumption is  that  the  payee  is  the  prior  indorser,  but 
this  presumption  may  be  overcome  by  parol  evidence  as 
between  the  parties.  As  between  the  immediate  parties 
or  those  standing  toward  each  other  in  the  same  relation, 
parol  proof  is  competent  to  show  what  their  obligations 
are.  Kiel  v.  Choate,  92  Wis.  517.  It  is  not  essential, 
though  important,  that  the  indorsements  should  be  writ- 
ten on  the  back  of  the  instrument,  but  if  not  thus  made 
it  is  subject  to  proof  as  to  the  intention  of  the  parties. 
There  may  be  a  valid  transfer  of  negotiable  paper  by  a 
separate  writing  or  by  mere  delivery  but  the  assignee 


28  American  Correspondence  School  of  Laic, 

would  thereby  acquire  no  better  right  than  his  assignor 
had  against  the  original  parties.  If,  however,  the  suc- 
cessive indorsements  have  completely  covered  the  back 
of  a  negotiable  instrument,  a  piece  of  paper  may  be  at- 
tached and  subsequent  indorsements  written  thereon. 
Paper  so  attached  is  called  an  allonge,  and  is  founded  in 
convenience.  Crosby  v.  Roub,  16  Wis.  616,  626. 
Where  there  are  several  successive  indorsements  in  blank, 
the  holder  may  fill  out  any  of  them  and  claim  title 
through  it,  or  he  may  fill  them  all  up  with  the  names  of 
the  successive  indorsers  showing  regular  indorsements  in 
full  from  the  payee  to  himself.  In  filling  up  blank  in- 
dorsements the  holder  cannot  increase  the  burden  of  the 
parties  liable  on  the  instrument,  as  by  striking  out  the 
name  of  a  prior  indorser,  or  by  making  it  payable  in  part 
to  one  person  and  in  part  to  another.  If  the  paper  bears 
a  blank  indorsement,  subsequent  indorsements  in  full 
will  not  prevent  its  transfer  by  delivery. 

The  indorsement  may  be  absolute  or  conditional.  An 
absolute  indorsement  gives  the  indorsee  the  right  to 
payment,  and  imposes  upon  the  indorser  the  obligation 
to  pay  the  face  of  the  instrument  at  maturity  in  case 
the  prior  parties  make  default,  subject  to  the  require- 
ment that  there  must  be  a  seasonable  presentment  for 
payment  and  immediate  notice  to  him  of  non-payment. 
The  indorsement  being  an  independent  contract,  is  sub- 
ject to  such  conditions  as  the  parties  may  agree  upon 
either  precedent  or  subsequent,  which  may,  or  may  not, 
destroy  the  negotiability  of  the  paper.  When  a  condi- 
tional indorsement  prevents  the  further  negotiation  of 
the  paper,  it  is  called  a  restrictive  indorsement,  such  as 
a  direction  to  pay  to  A  only,  or  to  pay  to  A  for  collec- 
tion. Xegotiable  paper  may  be  transferred  by  delivery 
or  by  indorsement  at  any  time  after  it  is  executed  and 


Negotiable  Instruments.  29 

even  after  maturity,  in  which  case  the  assignee  takes  it 
subject  to  existing  defenses.  The  indorsement  need  not 
be  dated  as  it  is  presumed  to  be  made  at  the  place  where 
the  paper  bears  date  and  before  maturity,  but  this  pre- 
sumption may  be  rebutted  by  competent  proof. 

An  irregular  indorsement  is  one  made  by  a  person 
whose  name  does  not  appear  upon  the  paper  as  payee 
or  indorsee  for  the  purpose  of  furnishing  additional 
security.  The  courts  are  not  agreed  as  to  the  liability 
of  the  irregular  indorser,  some  holding  that  he  should 
be  treated  as  a  joint  maker,  others  as  a  guarantor,  and 
others  as  an  indorser  without  the  right  to  notice  of  dis- 
honor. The  authorities  upon  the  subject  are  collected  and 
the  conflicting  views  illustrated  by  the  Supreme  Court 
of  Washington  in  the  case  of  Banking  Co,  v.  Savings 
Bank,  43  Pac.  359.  The  better  and  safer  rule  is  to 
treat  him  as  an  indorser  and  to  give  him  notice  of  dis- 
honor. Blakeslee  v.  Hewitt,  76  Wis.  341. 

A  bona  fide  holder  of  negotiable  paper  is  one  who 
takes  it  in  good  faith,  for  a  valuable  consideration,  in 
the  usual  course  of  business,  before  maturity  and  with- 
out notice  of  dishonor  or  of  existing  defenses.  In  his 
hands,  the  paper  is  not  subject  to  defenses  that  do  not 
appear  upon  its  face  unless  they  be  such  as  to  destroy 
absolutely  the  existence  thereof  as  a  monetary  obliga- 
tion. If  the  instrument  was  obtained  by  the  payee  with- 
out any  consideration,  or  for  a  voidable  consideration, 
or  if  the  consideration  has  failed,  or  if  it  has  been  paid 
before  maturity,  or  if  after  execution  it  has  been  put  in 
circulation  through  fraud,  theft  or  robbery,  payment 
may  still  be  enforced  by  an  innocent  holder  for  value. 
The  only  defenses  that  are  available  as  against  such 
holder  are  forgery,  a  material  alteration  of  the  paper, 
the  incapacity  of  the  maker,  illegality  of  consideration 


30  American  Correspondence  School  of  Law. 

which  renders  the  instrument  absolutely  void,  or  if  it 
has  been  signed  by  the  maker  and  put  into  circulation 
without  his  consent  and  without  any  negligence  on  his 
part.  While  a  recovery  may  be  had  on  a  voidable  in- 
strument in  the  hands  of  a  bona  fide  holder,  the  burden 
of  proof  may  shift  upon  the  trial  from  the  maker  to  the 
holder  of  the  paper.  In  an  action  on  a  note  by  an  in- 
dorsee against  the  maker,  where  the  defense  is  want  or 
failure  of  consideration,  the  production  of  the  paper  by 
the  holder  and  proof  of  the  genuineness  of  the  signature, 
if  it  has  been  denied,  is  sufficient  to  make  out  a  case  in 
his  favor,  and  the  burden  is  then  upon  the  defendant  to 
establish  by  competent  evidence  that  the  plaintiff  is  not 
a  holder  for  value  or  to  overcome  anj^  other  element  em- 
braced in  the  definition  of  a  good  faith  holder  as  already 
given.  If,  however,  the  defense  is  fraud  or  illegality  of 
consideration,  which  would  render  the  note  voidable  be- 
tween the  original  parties,  and  which  would  naturally 
prompt  the  payee  to  transfer  the  paper,  the  plaintiff 
makes  out  a  prima  facie  case  by  offering  the  note,  and 
the  defendant  must  then  prove  fraud  or  illegality ; 
thereupon  the  burden  shifts  to  the  plaintiff  to  show 
that  he  took  the  note  in  good  faith,  for  value 
and  before  maturity,  or  that  he  derived  title  from 
one  who  was  a  good  faith  holder;  the  burden  then 
shifts  and  the  defendant  must  show  that  the  pur- 
chase was  made  by  the  plaintiff  with  notice  of  the 
defect  or  in  bad  faith  implying  wilful  ignorance 
or  guilty  knowledge.  King  v.  Doane,  139  U.  S. 
166;Holden  v.  Phoenix  Rattan  Co.,  168  Mass.  570, 
47  N.  E.  241.  Gross  negligence  may  be  evidence  of 
bad  faith  but  it  is  not  the  same  thing;  and  the  proper 
inquiry  is,  did  the  party  seeking  to  enforce  payment 
have  knowledge  at  the  time  of  the  transfer,  of  the  facts 


Negotiable  Instruments.  31 

and  circumstances  which  impeach  the  title  between  the 
antecedent  parties  to  the  paper?  Atlas  National  Bank 
v.  Holm,  19  C.  C.  A.  94,  71  Fed.  489.  If  it  appears 
affirmatively  from  all  the  evidence,  whether  produced 
by  one  side  or  the  other,  that  the  plaintiff  is  not  a  holder 
in  good  faith,  there  can  be  no  recovery  upon  an  instru- 
ment voidable  for  fraud  or  illegality.  If  the  paper  is 
absolutely  void  payment  cannot  be  enforced  under  any 
circumstances. 

Negotiable  paper  must  be  presented  at  maturity  for 
payment  to  the  payor  or  his  agent  at  the  proper  place 
in  order  to  preserve  the  right  of  action  against  parties 
secondarily  liable,  which  include  the  indorsers  and  the 
drawer  of  the  bill  after  acceptance.  Guarantors  and 
sureties  are  not  discharged  by  failure  to  make  present- 
ment for  payment  or  to  give  notice  of  dishonor.  Their 
obligation  is  to  pay  the  instrument  at  maturity  if  the 
maker  does  not,  and  this  liability  as  regards  the  holder 
is  primary  and  absolute.  If  there  are  joint  obligors 
upon  the  paper  living  in  different  places  and  present- 
ment cannot  be  made  to  all  on  the  same  day,  it  may  be 
made  to  those  who  are  accessible  at  the  time  and  place 
of  payment  and  to  the  others  within  a  reasonable  time 
thereafter.  As  long  as  the  holder  of  the  paper  does  not 
know  where  the  payor  resides,  he  satisfies  the  law  if  he 
holds  it  in  readiness  to  receive  payment  at  the  place  of 
the  date.  If  presentment  is  made  to  the  maker  or  ac- 
ceptor in  person  and  payment  is  refused  without  objec- 
tion as  to  the  place,  that  is  sufficient,  and  protest  may 
be  made,  if  required,  and  notice  of  dishonor  given  to 
parties  secondarily  liable.  Where  days  of  grace  are 
allowed,  presentment  must  be  made  on  the  last  day  of 
grace,  otherwise  it  is  insufficient.  If  paper  falls  due  on 
a  legal  holiday,  presentment  must  be  made  on  the  sue- 


32  American  Correspondence  School  of  Law. 

ceeding  business  day  unless  days  of  grace  are  allowed, 
when  if  the  last  day  be  a  holiday  the  demand  of  payment 
should  be  made  on  the  next  preceding  business  day. 

The  protest  is  intended  to  furnish  the  holder  proof 
of  the  fact  of  presentment  for  payment  and  of  notice 
of  dishonor  in  an  action  upon  the  paper  against  the 
drawer  and  indorsers,  and  the  certificate  of  a  notary 
public  is  competent  and  sufficient  for  that  purpose.  The 
law  merchant  requires  protest  of  foreign  bills  and 
notes  only  and,  in  the  absence  of  statute,  it  is  not  neces- 
sary to  protest  inland  paper,  although  it  is  not  uncom- 
mon. Where  a  bill  payable  at  a  certain  time  in  the 
future  has  been  presented  at  maturity  for  acceptance 
and  payment  and  dishonored,  it  should  be  protested  both 
for  non-acceptance  and  non-payment.  Whenever  ne- 
gotiable paper  is  dishonored  by  non-acceptance  or  non- 
payment whether  subject  to  protest  or  not,  it  is  the  duty 
of  the  holder  to  give  immediate  notice  to  all  parties 
secondarily  liable,  otherwise  they  will  be  discharged. 
Such  notice  may  be  given  by  a  notary  and  his  certificate 
is  proof  of  the  fact.  If  the  holder  notifies  all  the  in- 
dorsers, the  notice  will  inure  to  the  benefit  of  any  one 
of  them  who  may  be  compelled  to  pay  the  paper  and 
he  may  then  enforce  payment  against  any  prior  party 
thereon.  If  the  holder  notifies  only  his  immediate  in- 
dorser,  the  latter  should  give  immediate  notice  to  prior 
indorsers  for  his  own  protection,  and  such  notice  will 
inure  to  the  benefit  of  the  holder  and  all  others  concerned. 
The  notice  may  be  given  by  the  holder  or  by  any  person 
authorized  to  act  for  him  and  should  be  given,  if  the 
paper  has  been  dishonored,  in  all  cases  and  under  all 
circumstances  unless  notice  has  been  waived  by  parties 
secondarily  liable.  Immediate  notice  must  be  given, 
which  includes  the  next  day  after  dishonor.  The  notice 


Negotiable  Instrument*.  33 

consists  of  the  communication  of  the  fact  of  dishonor 
and  it  may  be  in  writing  or  it  may  be  verbal;  it  may  be 
given  personally  or  may  be  communicated  by  telephone 
or  by  telegraph  or  by  mail.  Xo  particular  form  of  notice 
is  required;  it  is  sufficient  if  it  contains  a  description 
of  the  paper  and  a  statement  that  it  has  been  presented 
for  acceptance  or  payment,  that  it  has  been  dishonored, 
that  it  has  been  protested,  if  protest  is  necessary,  and 
that  the  holder  looks  to  the  party  addressed  for  payment. 
GJicksman  v.  Early,  78  Wis.  223. 

Delay  in  making  presentment  of  negotiable  paper  is 
excused  when  caused  by  circumstances  beyond  the  con- 
trol of  the  holder  and  which  are  not  imputable  to  his  neg- 
ligence. A  general  disturbance  or  overwhelming  ca- 
lamity which  puts  an  end  to  usual  business  transactions 
and  to  commercial  intercourse  is  sufficient  to  excuse  the 
failure  to  make  presentment  and  protest  and  to  give 
notice  of  dishonor.  Whenever  the  impediment  is  re- 
moved, it  is  the  duty  of  the  holder  within  a  reasonable 
time  to  make  presentment  and  protest  and  to  give  the 
notice.  Presentment  and  notice  may  be  waived  by 
agreement  between  the  parties,  and  are  deemed  waived 
when  the  paper  is  negotiated  for  the  benefit  of  the 
drawers  or  indorsers,  or  when  they  have  been  provided 
with  funds  for  payment,  or  where  the  drawer  and  drawee 
of  a  bill  are  the  same  person,  or  members  of  the  same 
firm  or  officers  of  the  same  corporation,  or  as  to  one 
transferring  the  paper  so  near  the  date  of  maturity  that 
it  is  impossible  to  make  presentment.  Presentment  is 
also  waived,  where  the  parties  secondarily  liable,  after 
maturity  of  the  paper  and  with  knowledge  of  the  failure 
to  demand  payment  and  to  give  notice  of  dishonor, 
promise  to  pay  the  same  or  make  part  payment  under 


34  American  Correspondence  School  of  Law. 

circumstances  that  raise  a  presumption  of  a  promise  to 
pay  the  balance. 

Payment  consists  in  tendering  the  amount  due  upon 
the  paper  for  the  purpose  of  discharging  the  obligation. 
If  the  intention  is  to  purchase  the  paper  the  tender 
should  be  accompanied  by  a  request  for  its  transfer  by 
delivery  or  indorsement.  The  presumption  is  that  the 
tender  of  the  amount  is  intended  as  payment,  and  it  will 
extinguish  the  obligation  unless  there  is  an  agreement 
to  the  contrary.  Payment  must  be  made  to  the  holder 
of  the  paper  or  his  agent  upon  the  surrender  thereof. 
If  the  instrument  is  payable  to  bearer  or  is  indorsed  in 
blank,  it  may  properly  be  paid  to  any  one  having  posses- 
sion; but  if  payable  to  order,  payment  should  be  made 
to  the  last  indorsee  in  order  to  discharge  the  obligation. 
Payment  extinguishes  the  liability  of  the  payor  and  sub- 
sequent parties  to  the  paper;  but  if  made  by  a  party 
secondarily  liable,  it  does  not  discharge  the  obligation 
of  the  prior  parties  and  he  may  re-issue  the  instrument 
and  transfer  his  right  of  action  thereon  as  against  them. 
When  one  indebted  to  another  on  two  or  more  accounts 
or  instruments,  makes  a  voluntary  payment  of  a  sum 
insufficient  to  discharge  them  all,  he  has  the  right  to 
direct  how  the  payment  shall  be  applied  if  such  direc- 
tion is  given  within  a  reasonable  time ;  if  the  debtor  fails 
to  make  the  appropriation,  the  creditor  may  apply  the 
payment  as  he  pleases  upon  any  debt  that  is  due  and 
the  validity  of  which  is  not  disputed;  if  no  appropria- 
tion is  made  by  either  party,  the  law  makes  the  applica- 
tion so  as  to  carry  out  the  probable  intention  of  the 
parties,  ordinarily  to  the  indebtedness  of  longest  stand- 
ing or  which  is  most  burdensome  to  the  debtor,  except 
that  the  payment  will  be  applied  to  a  debt  unsecured 
rather  than  to  one  secured  upon  the  debtor's  property. 


Negotiable  Instruments.  35 

If  the  security  is  given  by  an  accommodation  maker  or 
indorser,  the  rule  is  different,  and  the  application  will 
be  made  so  as  to  relieve  him.  Payment  is  usually  made 
in  money  or  its  equivalent,  but  it  may  be  made  by  a  new 
note  or  bill  signed  by  the  same  or  a  third  party,  and  it 
will  discharge  the  indebtedness  when  it  is  clear  that  such 
was  the  intention  of  the  parties.  Payment  by  note  or 
bill  is  generally  held  to  be  conditional,  but  it  suspends 
the  right  of  action  upon  the  original  obligation  until 
the  new  instrument  matures. 

Forgery  is  the  counterfeit  making  or  fraudulent 
alteration  of  any  writing,  which,  if  genuine,  would  ap- 
parently create  a  legal  obligation.  In  its  most  com- 
mon form,  it  is  the  signing  of  the  name  of  another  to 
an  instrument  with  intent  to  defraud.  The  effect  would 
be  the  same  if  an  instrument  were  negotiated  bearing  a 
genuine  signature  but  with  a  fraudulent  representation 
that  it  was  the  obligation  of  another  person  of  the  same 
name.  The  material  alteration  of  negotiable  paper  is  a 
iorgery,  if  done  with  intent  to  defraud,  and  not  only 
avoids  the  instrument  but  also  extinguishes  the  debt 
which  constitutes  the  consideration.  An  alteration  in- 
nocently made  by  a  party  to  the  paper,  is  not  a  forgery, 
but  if  material,  will  nevertheless  destroy  its  validity  al- 
though an  action  may  be  maintained  for  the  original 
consideration.  If  the  alteration  is  immaterial,  the  in- 
tent with  which  it  is  made  is  immaterial,  and  the  instru- 
ment may  be  enforced.  Fuller  v.  Green,  64  Wis.  159. 

Any  alteration,  whether  favorable  or  not  to  the  party 
making  it,  is  material,  which  in  any  manner  changes  the 
legal  effect  of  the  instrument  with  respect  to  the  per- 
sonality, number  and  relation  of  the  parties  or  the  date, 
amount  or  time  of  payment.  If  the  alteration  is  appar- 
ent on  the  face  of  the  paper  it  is  incumbent  upon  the 


36  American  Correspondence  School  of  Laic. 

holder  to  show  that  it  was  properly  made,  or  at  least 
was  so  made  before  he  received  it;  if  it  is  not  so  ap- 
parent, the  harden  is  upon  the  party  alleging  the.  altera- 
tion to  prove  the  fact.  The  existence  of  interlineations 
upon  the  paper  raises  no  presumptions  of  a  fraudulent 
alteration,  provided  the  appearance  of  the  writing  and 
ink  is  such  as  to  indicate  that  the  whole  was  written  at 
the  same  time  by  the  same  hand.  Maldaner  v.  Smith, 
102  Wis.  30.  An  alteration  is  not  material  which  does 
not  change  the  effect  of  the  paper,  as  where  words  are 
put  in  or  stricken  out  which  have  no  legal  significance, 
or  are  added  which  are  implied  by  law. 

The  bona  fide  holder  of  negotiable  paper  which  has 
been  materially  altered  may  enforce  the  same  as  against 
the  parties  thereto,  if  by  their  negligence  they  made  it 
possible  for  such  alteration  to  be  made  without  leaving 
marks  of  suspicion,  and  for  a  prudent  man  to  be  thereby 
imposed  upon.  Anyone  receiving  or  paying  a  forged 
instrument  under  the  mistaken  belief  that  it  is  genuine 
may  recover  back  the  amount  paid  therefor  provided  he 
promptly  notifies  the  payee  upon  discovery  of  the 
forgery. 

The  surety  and  guarantor  upoja  negotiable  paper  un- 
dertake to  pay  the  face  thereof  on  default  of  the  prin- 
cipal debtor  and  in  that  respect  the  obligations  are  sim- 
ilar though  founded  upon  contracts  essentially  different. 
A  surety  undertakes  to  pay  if  the  debtor  does  not5  while 
the  guarantor  undertakes  to  pay  if  the  debtor  cannot. 
A  surety  assumes  his  liability  by  becoming  a  regular 
party  to  the  paper,  as  co-maker  of  a  note,  and  his  lia- 
bility is  then  primary  and  absolute,  and  upon  the  failure 
of  the  principal  to  pay  he  is  bound  to  respond  without 
any  previous  demand  upon  the  latter  or  notice  of  de- 
fault. The  guarantor  is  never  a  regular  party  to  the 


Negotiable  Instruments.  37 

instrument,  his  liability  is  created  by  an  independent 
collateral  agreement  by  which  he  is  bound  for  payment 
upon  default  of  the  principal  debtor.  The  obligation 
of  the  guarantor  may  be  written  upon  the  same  paper 
and  it  is  then  similar  to  that  of  the  endorser,  but  it  is 
different  in  this,  the  consideration  should  be  expressed 
and  the  liability  is  not  discharged  by  failure  to  make 
presentment  for  payment  and  to  give  notice  of  dishonor. 
The  guarantor  is  bound  to  pay  if  he  receives  notice  of 
the  default  of  the  principal  within  a  reasonable  time 
after  the  paper  matures.  The  guaranty  is  not  required 
to  be  in  any  particular  form;  it  may  be  written  on  the 
paper  or  it  may  be  a  separate  instrument.  The  guar- 
anty may  be  absolute  or  it  may  be  conditional,  restricted 
to  the  happenings  of  some  contingency,  or  limited  .with 
respect  to  the  amount,  or  the  time,  or  the  number  of 
transactions.  When  the  guaranty  is  given  contempo- 
raneous with  the  execution  of  the  original  obligation,  it 
is  supported  by  the  same  considerations  although  an 
expression  thereof  is  important,  as  "for  value  received." 
When  the  guaranty  is  subsequent  to  such  execution  it 
must  be  supported  by  a  new  and  independent  considera- 
tion acknowledgment  of  which  should  be  therein  ex- 
pressed. Under  the  statute  of  frauds,  a  special  prom- 
ise to  answer  for  the  debt  or  default  of  another  person 
is  void  unless  the  agreement  or  some  note  or  memoran- 
dum thereof,  expressing  the  consideration,  be  in  writing 
and  subscribed  by  the  party  charged  therewith.  The  lia- 
bility of  the  surety  being  collateral  to  the  principal  con- 
tract and  essentially  a  part  of  it,  is  not  within  this  statute, 
while  the  obligation  of  the  guarantor,  being  an  inde- 
pendent collateral  agreement,  is  within  its  provisions, 
and  hence  the  necessity  of  expressing  the  consideration, 
especially  if  the  undertaking  is  subsequent  to  the  original 


38  American  Correspondence  School  of  Law. 

contract.  A  guaranty  written  upon  negotiable  paper 
passes  with  the  transfer  thereof  and  may  be  enforced 
by  the  holder,  and  if  written  upon  a  separate  paper  it 
is  subject  to  assignment  and  in  that  way  may  pass  to 
the  holder  of  the  original  obligation  and  be  enforced 
by  him  against  the  guarantor.  If  the  guaranty  relates 
to  only  one  specific  contemporaneous  liability,  or  the 
negotiations  are  conducted  personally,  no  formal  accept- 
ance is  required  especially  if  it  is  an  express  promise  or 
undertaking;  but  where  it  is  separate  from  the  original 
obligation,  especially  if  it  relates  to  subsequent  or  con- 
tinuing transactions,  it  is  not  complete  until  there  has 
been  an  acceptance  and  the  guarantor  has  been  notified 
thereof.  When  the  liability  of  the  guarantor  is  de- 
pendent upon  some  condition  expressed  in  the  writ- 
ing, a  strict  compliance  is  required  in  order  to  enforce 
the  obligation.  When  the  guaranty  is  absolute  it  is  the 
duty  of  the  guarantor  to  see  that  the  debt  is  paid  and 
he  is  not  strictly  entitled  to  notice  of  the  default  of  his 
principal,  and  he  is  not  discharged  by  failure  to  give 
such  notice,  unless  he  can  show  that  by  reason  thereof 
he  has  suffered  loss  which  he  could  have  avoided  if  notice 
had  been  given  within  a  reasonable  time  after  the  paper 
matured.  The  guaranty  of  collection  stands  upon  a  dif- 
ferent footing  from  the  guaranty  of  payment;  it  is  an 
undertaking  to  pay  on  condition  that  the  creditor  shall 
first  diligently  prosecute  the  claim  against  the  principal 
debtor  without  avail.  As  a  general  rule,  a  resort  cannot 
be  had  to  a  guarantor  of  collection  until  the  holder  of 
the  paper  has  recovered  judgment  thereon  against  the 
principal  and  an  execution  thereon  has  been  returned 
unsatisfied. 

It  is  the  duty  of  the  surety  to  see  that  the  paper  is 
paid  at  maturity,  and  it  is  his  right  to  make  payment 


Negotiable  Instruments.  39 

at  that  time,  if  the  principal  does  not,  and  to  seek  in- 
demnity from  him  and  to  enforce  contribution  from  his 
co-sureties,  if  any ;  and  any  act  on  the  part  of  the  cred- 
itor which  interferes  with  that  right  discharges  the 
surety.  A  guarantor  will  be  discharged  by  any  act  of 
the  creditor  which  would  discharge  a  surety.  A  valid 
agreement  for  the  extension  of  the  time  of  payment  be- 
tween the  principals,  or  the  surrender  of  collaterals  given 
to  secure  payment  of  the  debt  will  operate  as  a  release 
of  the  surety  in  so  far  as  it  impairs  his  rights.  If  for- 
bearance is  granted  by  the  creditor  to  the  principal  re- 
serving the  remedies  of  the  surety  he  is  not  discharged, 
or  if  collaterals  are  surrendered  he  is  released  only  to 
the  extent  of  their  value  which  measures  his  loss. 

Because  the  surety  has  no  interest  in  the  contract  of 
his  principal,  and  because  the  creditor  may  prejudice  the 
surety  by  delay  without  any  specific  agreement  to  that 
effect,  equity  will  sometimes  interfere  in  behalf  of  the 
surety,  either  against  his  principal  or  against  his  creditor. 
"In  such  a  case  the  surety  may  proceed  in  a  court  of 
equity  against  the  principal  to  compel  him  to  pay  the 
debt,  or  against  the  creditor  to  compel  him  to  proceed  at 
law  to  collect  his  debt  from  the  principal."  Harris  v. 
Xewell,  42  Wis.  687,  691. 

ROBERT  M.  BASHFOKD. 


